Arizona Law Firm Severs Back Office for $125 Million Investment

Rafi Law Group is separating back-office services from its legal operation to receive $125 million from an outside investor, the personal injury firm announced Monday.

The Arizona-based firm will use the cash infusion to expand nationally, invest in technology and infrastructure, and partner with other personal injury law firms. Rafi Law Group is already in talks with other personal injury firms about expanding, said Brandon Rafi, the firm’s founder.

Rafi’s move to create a management services organization, which separates functions such as accounting and marketing from legal services, is a creative approach by firms to gain outside investment while bypassing state requirements that lawyers own firms. After catching on in physician-owned medical practices, the strategy is gaining traction in the legal industry though remains rare.

“MSOs keep that separation,” Rafi said. “Attorneys maintain their independence so that they can make those decisions that are best for the clients.”

Brandon Rafi

He didn’t disclose the identity of the investor. It is a US-based investment manager that has experience with legal investment, Rafi said.

Rimon PC in 2019 became one of the first law firms to sell its back office functions, now known as Briefly, to private equity firm AlpineX. McDermott Will & Schulte said in November it is in preliminary discussions about selling a stake in its law firm to outside investors, and Quinn Emanuel founder John Quinn said in an interview last month that he envisions MSOs becoming more common.

Some MSOs are entities spun off from law firms so that outside investors can take direct stakes, while others are created to offer services directly to firms. Texas-based Certum Group, which specializes in litigation finance and related insurance offerings, acquired an MSO in October targeting mass-tort firms and has already partnered with several of them.

‘Thousand Law Firms’

Mass tort and personal injury firms have been described “ground zero” for MSOs.

They’re also popular in Arizona’s alternative business structure program, which allows non-lawyer ownership of firms. A large portion of ABS firms are in the mass tort and personal injury space, so much so that the policy-making body for the state’s court system updated its rules to crack down on firms using the program to generate leads for lawyers in other states.

Litigation funders have also taken in an interest. A company tied to Fortress Investment Group has a 20% interest in an Arizona personal injury law firm through the state’s alternative business structure program.

Rafi Law Group, which launched in 2015, specializes in personal injury cases such as car and truck accidents and has represented almost 100,000 clients.

MSOs offer a different route to outside capital than Arizona’s alternative business structures. Though the firm is based in the state, Rafi said the MSO better suited the firm’s needs since there are guardrails that prevent the intertwining of outside capital into the law firm.

Rafi said one of the main goals of utilizing an MSO is to grow, either by starting new law firms or acquiring existing ones. He said he believes that there will be consolidation in the market and he wants the firm to be one of the leaders that defines what that looks like.

His hope is that his MSO can be used by other firms for the same back office services. “How I see it is that the MSO could service a thousand law firms going forward,” he said. “It’s not necessarily specific to just one.”

Alternative structures have caught the attention of legislators. California enacted a law in January that blocks alternative law firms from operating in the state through arrangements with local firms. Illinois introduced a similar bill in February, which also bans firms from sharing fees with firms operated by non-lawyers and also includes MSOs.

Rafi said he hired attorneys from Greenberg Traurig to help navigate the MSO through ethics guidelines and state regulations. He said he’ll continue to keep a close eye on legislation.

The firm also hired Keefe, Bruyette & Woods, Inc., a specialist investment bank and a subsidiary of Stifel Financial Corp., to broker the deal with the investor, which has a minority stake.